Ennis, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended May 31, 2022; comparative period ended May 31, 2021. Unaudited consolidated results. Ennis manufactures and sells printed business products, primarily through independent distributors, and operates 55 U.S. manufacturing plants as one reportable segment.
Financial results and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $107.7 million | $96.9 million | +11.1% |
| Gross profit / margin | $34.0 million / 31.6% | $29.2 million / 30.1% | Margin +1.5 percentage points |
| Operating income / margin | $16.3 million / 15.2% | $10.5 million / 10.9% | Higher |
| Net earnings | $11.6 million | $7.3 million | +59.2% |
| Diluted EPS | $0.45 | $0.28 | Higher |
| Operating cash flow | $14.2 million | $11.9 million | Higher |
- Management attributed sales growth to strong customer demand and pricing increases to cover inflationary costs. AmeriPrint, acquired June 1, 2021, contributed $1.9 million of current-quarter sales.
- Gross margin improved with pricing adjustments and operational efficiencies. SG&A declined 6.5% to $17.7 million, reflecting efficiencies, prior facility consolidation, and lower restricted-stock expense.
- Cash from operations was supported by higher earnings and accounts payable/accrued expenses; cash uses included $5.4 million for inventory growth and $2.0 million from higher receivables.
- Capital expenditures were $1.0 million. Investing cash outflow was $1.0 million; financing cash outflow was $7.6 million, including $6.5 million of dividends and $1.1 million of share repurchases.
Balance sheet, debt, and capital returns
- At May 31, 2022, cash was $91.2 million, working capital was $136.3 million, and the current ratio was 4.3 to 1. Total assets were $377.6 million; shareholders’ equity was $308.6 million.
- No outstanding long-term debt. The prior revolving credit agreement expired November 11, 2021 and was not renewed. The company had $0.6 million of standby letters of credit secured by cash collateral.
- Operating lease liabilities totaled $14.7 million. The balance sheet also included a $5.7 million unfunded pension liability.
- Quarterly dividend was $0.25 per share, up from $0.225 a year earlier. On June 17, 2022, the board declared another $0.25-per-share dividend, payable August 8, 2022.
- Ennis repurchased 64,082 shares at an average $17.46 per share; $3.9 million remained available under the repurchase authorization.
Outlook, commentary, and risks
- Management expects operating cash flows and existing cash to fund anticipated operating and capital needs. It estimates current-fiscal-year capital expenditures, excluding possible acquisitions, at $3 million to $5 million; no revenue or earnings guidance was provided.
- Management cited supply-chain disruption, labor shortages, inflation in paper and other inputs, and uncertainty around COVID-19 and shifting demand. It plans to monitor orders and adjust pricing, costs, and raw-material purchases.
- Longer-term challenges include declining demand for some traditional printed products due to digital alternatives, intense price competition, customer and distributor consolidation, and dependence on a limited number of paper suppliers. Management stated paper pricing was expected to remain within a range that would not unfavorably affect margins, while acknowledging uncertainty in supply and market conditions.
- Risk factors also include the ability to pass through higher raw-material, energy, freight, labor, and benefit costs; customer credit risk; acquisition integration; and potential goodwill impairment. Approximately $90.2 million of cash was above FDIC-insured limits at quarter-end.
- Related-party activity included approximately $1.0 million of sales and $0.1 million of lease payments during the quarter to an entity controlled by a board member. No material legal proceedings or material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether pricing and demand continue to offset inflation, and whether gross-margin gains persist.
- Inventory and receivables growth, paper availability and pricing, and concentration among key suppliers.
- Cash generation relative to dividends, repurchases, pension funding, and planned capital expenditures.
- Potential effects of digital substitution, distributor consolidation, and acquisitions on sales and margins.
- Exposure of uninsured cash balances and the company’s liquidity arrangements following expiration of its credit facility.